Lot Shortages to Inflate New Home Prices

Nearly 60 percent of builders report that the overall supply of developed lots in their areas is “low” or “very low,” marking the largest percentage since the National Association of Home Builders/Wells Fargo Housing Market Index began tracking such information in 1997.

A shortage of buildable lots will likely translate into higher prices for new homes.

Thirty-nine percent of builders surveyed say the price of developed “A” lots — which are considered the most desirable locations — is “somewhat higher” than it was a year ago, while 30 percent note the price is “substantially higher.” Eighteen percent of builders say the price of “B” lots — which are considered to be in good locations but not prime areas — is substantially higher than a year ago, and 10 percent say the price of “C” lots is substantially higher.

Home buyers can expect 100 percent of the increased lot costs to be passed on to them via a higher sales price, says David Crowe, NAHB’s chief economist.

“Builders price homes based on what they are going to have to pay for all the ingredients,” Crowe told The Wall Street Journal. “If they are starting to pay more for lots, they are going to have to pass that on right away.”